It's Time to Start Thinking About 2016 Tax Planning

By: Bruce Legawiec, CPA, Partner

Although tax season just finished, it’s never too early to start planning for next year. There are things you can do now to take advantage of various attribute carryovers to reduce your tax in the coming year. Here is a list of suggested items to review:

Capital Loss Carryforwards - Capital losses are limited to offset other capital gains, losses can only be used up to $3,000 annually to offset other income and any excess is carried forward. You may want to take a look at Schedule D of your tax return to determine if you have capital loss carryforwards. If you do, you can realize capital gains in the coming year up to the loss and not pay tax. This is good information to pass on to your financial advisor to help manage your investment portfolio.

Suspended Passive Loss Carryforwards - There are many limitations on the utilization of passive activity losses and losses from rental properties. If you have been subject to loss limitations, this presents opportunities for planning in the future. Form 8582 reports the amount of any suspended passive losses that can be carried forward to future years. These losses can be used on the “disposition” of property or to offset future passive income. The “character” of the losses will be treated as an ordinary deduction when used in a future year. If you are planning on selling any investment property in 2016 it would be wise to determine if the sale will “free up” any suspended passive losses.

Charitable Donation Carryforwards - If you have made large donations in prior years that were not fully allowed, then there may by charitable donation carryforwards. In general, cash donations are limited to 50% of Adjusted Gross Income (AGI) and donations of capital assets (land or stock) are limited annually to 30% of AGI.  If donations exceed AGI limits, the excess is carried forward. However, unlike capital loss carryforwards and suspended passive losses that carryforward indefinitely, charitable donations can only be carried forward for 5 years. If the donation is not used in 5 years, it expires and is of no benefit.  A key here is that any current year donation is used first, so it is always a good idea to check to make sure you do not have any expiring donation carryforwards.

Taking a little time now to know and understand your tax return can help to save you taxes in future years. 

For more information call Osborne Rincon CPAs at 760-777-9805.